Your first cap table: what to write down before you give anyone equity
· RKube Services
Before you give anyone equity, write down five things per grant. A starter guide to cap tables, vesting and the 30-day 83(b) deadline.
Most early cap tables start as a promise. A cofounder gets "a third," an early engineer gets "some points," an advisor gets "a little something." Nobody writes it down because everyone trusts each other. Then an investor asks for the cap table, and three people remember three different numbers.
A cap table is just a record of who owns what. Keeping one from the first day costs almost nothing. Rebuilding one later costs a lot.
Start with shares, not percentages
Percentages change every time someone new comes in. Shares don't. If you issue 10,000,000 shares and a cofounder holds 3,000,000, that number stays true after a raise even though their percentage drops. Talk in shares, and let the percentage be the output.
Record five things for every grant
For each person who gets equity, write down:
- The number of shares or options
- The type (common stock, options, SAFE, convertible note)
- The date it was granted
- The vesting schedule and cliff
- The price paid, even if it was fractions of a cent
That's the whole minimum. A spreadsheet works fine at this stage.
Put vesting on founders too
A standard setup is four years with a one-year cliff. It feels awkward to put vesting on yourself. It protects you when a cofounder leaves in month eight and would otherwise keep a third of the company.
File the 83(b) within 30 days
If founders receive stock that vests, each one should consider filing an 83(b) election with the IRS within 30 days of the grant. Miss it, and you may owe tax on the value of the shares as they vest, which can be a lot once the company is worth something. There is no extension and no fix after day 30.
Keep the paper behind the numbers
The cap table is only as good as the documents behind it: board consents, stock purchase agreements, option grants, SAFE agreements. If a number on the table has no signed document behind it, an investor's lawyer will find it.
When a spreadsheet stops being enough
Once you have options outstanding, SAFEs converting, or more than a dozen holders, a spreadsheet gets fragile. That's usually the point to move to cap table software and have someone reconcile it against the signed documents.
How RKube Services helps
We set up and maintain cap tables for small companies and early startups, tie them to the underlying documents, and keep them in step with your books and tax filings. Call 984-234-7030 or visit rkubeservices.com.
General information only, not legal or tax advice.